U.S. stocks drop on earnings caution, IMF

Aluminum producer Alcoa swings to a loss

KateGibson

SAN FRANCISCO (MarketWatch) — U.S. stocks fell sharply Tuesday to close near session lows, extending losses as investors braced for earnings and the International Monetary Fund cut global growth outlooks.

The Dow Jones Industrial Average
US:DJIA
shed 110.12 points, or 0.8%, to close at 13,473.53, near its intraday low of 13,473.31. The decline marks the Dow’s second decline in as many days.

Shares of Bank of America Corp.
US:BAC
fell late in the trading day in tandem with Wells Fargo & Co.
US:WFC

Late in the session, U.S. Attorney for the Southern District of New York sued Wells Fargo, alleging the bank acted recklessly issued mortgages, worsening the collapse in the housing market. The suit follows a similar one filed recently by the New York Attorney General’s office against J.P. Morgan Chase & Co.
US:JPMSee: U.S. sues Wells Fargo

“Earnings season is not starting off to be a good one,” offered Bruce McCain, chief investment strategist at Key Private Bank.

When the aluminum maker did report, it reported a loss, but adjusted earnings were 3 cents a share, just above Wall Street expectations, and in line with so-called whisper numbers. Read more on Alcoa earnings.

The S&P 500 index and Nasdaq extended losses into a third day,

Merkel in Greece; debt talks locked

(4:15)

German Chancellor Angela Merkel visits Greece while the country remains locked in negotiations with its creditors over a package of austerity measures.

The S&P 500 index
US:SPX
fell 14.40 points, or 1%, to close at 1,441.48, with energy the sole sector to remain in positive terrain among its 10 major industries as oil prices jumped on heightened tensions in the Middle East.

On the New York Mercantile Exchange, crude futures for November delivery
US:CLX2
rallied $3.06 to $92.39 a barrel.

Apple Inc.
US:AAPL
slid into correction mode, retreating more than 10% from its record $702.10 on Sept. 19, with the smartphone maker falling to as low as $623.55 a share, and closing down 0.4%, or $2.32, at $635.85.

“Tech is weak across the board, and we’re going into an earnings season that is going to be the toughest in three years,” said Peter Boockvar, equity strategist at Miller Tabak.

Intel Corp.
US:INTC
was the worst performer on the Dow 30, closing down 2.7%, after Sanford C. Bernstein & Co. downgraded shares of the Dow component and semiconductor maker.

For every stock rising more than four fell on the New York Stock Exchange, where more than 490 million shares had traded by the close. Composite volume topped 3.1 billion.

The ‘morning after’

“We’re in the sobering up period; last month was so euphoric, the Fed gave us everything we wanted and more, all the problems in Europe were solved, and now it’s the morning after and we realize there are still problems in Europe, and with the IMF report, maybe we’re tilting back toward recession, at least on a global basis,” said McCain at Key Private Bank.

And, the fact that the U.S. presidential race seems to have tightened in recent days could also be weighing on the market.

Regardless of which candidate one favors, “the public doesn’t like uncertainty over the next four years, so you tend to have a selloff when you get close to elections,” said McCain.

The euro dropped against the U.S. dollar
US:EURUSD
as German Chancellor Angela Merkel visited Athens, where she was greeted by mass demonstrations as she reiterated her stance that she wants Greece to remain in the euro.

In Luxembourg, European finance ministers gathered for a second day after pronouncing, on Monday, the European Stability Mechanism, or permanent rescue fund, operational.

“People see what’s going on in the real world, and that’s creating some nervousness in the context of a complacent market driven by central bankers, with the thinking we’ll never go down because of all the money they print,” said Boockvar at Miller Tabak.

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